Morning Briefing: Verbal Warnings, Forint Volatility Expected

The region’s central bankers may continue to warn markets Wednesday and later this week of possible market intervention to stem unusual volatility and to potentially weaken currencies to stimulate exports.

Hungary’s forint will remain in the spotlight after it strengthened versus the euro late Monday and Tuesday. It had weakened after a column written by the Economy Minister Gyorgy Matolcsy appeared Thursday and was viewed by markets as an attempt to talk down the forint to favor exporters.

Both Hungary and the Czech Republic are gripped by recession.

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The Czech central bank has repeated warned that is ready to sell the koruna if it sees an unwarranted appreciation of the currency.

But in Hungary, the picture isn’t so clear. Another senior government official, state minister Gyula Pleschinger, told The Wall Street Journal on Tuesday that a strong forint is more favorable and a stable currency rate is very important.

“Right now, a stronger forint is more useful for Hungary than a weak forint as there’s a very high foreign currency exposure—not only households but also the state is heavily indebted in foreign currency. A sudden forint weakening puts very heavy burdens on them,” Mr. Pleschinger said.

Analyst Lars Christensen of Danske Bank said: “We actually expect some recovery in the forint in the medium term, but, short term, the uncertainties regarding the outlook for monetary policy are likely to weigh on the forint despite a fairly benign global financial environment.”

POLAND: Poland’s zloty volatility and levels aren’t worrying, the Prime Minister Donald Tusk said Tuesday, a day after the leader of the junior coalition partner said he preferred a weaker level for the currency.

“We all know that a weak currency has its benefits and shortfalls,” the prime minister said during a press conference. “I think that current levels and volatility are well within the safe range.”

POLAND: Poland’s annual inflation rate eased to 2.4% in December from 2.8% in November, unexpectedly moving below the central bank’s target of 2.5% for the first time since August 2010, the country’s statistics office said Tuesday.

Prices rose 0.1% in December from the previous month, the same rate as in November.

CZECH REPUBLIC: Czech 70% state-owned power company CEZ AS (BAACEZ.PR) said Tuesday that it is considering selling its stake in a project to build replacement nuclear reactors in Slovakia to a Russian company so it can focus on its own Czech nuclear expansion project.

“For CEZ our main priority now is preparing for the construction of two new reactors at the Temelin nuclear power plant,” said Barbora Pulpanova, CEZ spokeswoman.

SLOVAKIA: German utility E.ON SE and France’s GDF Suez SA said Tuesday they have agreed to sell their combined 49% stake in Slovak gas group Slovensky Plynarensky Priemysel AS for 2.6 billion euros ($3.5 billion) to Czech investment fund Energeticky a Prumyslovy Holding.

The sale comes as both E.ON and GDF Suez have been selling assets to strengthen their financial positions to better withstand difficult trading conditions in their home markets.

HUNGARY: The impending appointment of a new central bank chief in Hungary shouldn’t lead to an excessive loosening of monetary policy, a senior Hungarian finance official said Tuesday, and could help heal strained relations between the bank and the administration of Prime Minister Viktor Orban.

“The trust between the government and the central bank, which today unfortunately is far from ideal, could be reestablished” when a new governor is selected to succeed outgoing incumbent Andras Simor, said Gyula Pleschinger, a state secretary at the Economy Ministry.

CEE: Raiffeisen Bank International AG's chief executive said Tuesday he doesn’t see significant deleveraging occurring in Central and Eastern Europe.

“I don’t see a reason why should we expect a fear of deleveraging in the fastest-growing growth market of Europe,” Herbert Stepic told reporters on the sidelines of a monetary conference on the region

About Emerging Europe

Emerging Europe Real Time provides sharp analysis and insight into what’s making news in Central and Eastern Europe. Drawing on the expertise of our reporters in the Czech Republic, Hungary, Poland, Russia and Turkey, the site provides an inside track on economics, politics and business in this emerging part of the European continent.